Beef plant audit: Conflict of interest with Benda

Former state official should have disclosed employment plans

Feb. 14, 2014

Written by

Jonathan Ellis and David Montgomery

THE STORY SO FAR

CONCEPT: The Northern Beef Packers plant was an ambitious attempt to bolster South Dakota’s economy by slaughtering the state’s cows in Aberdeen instead of shipping them out of state. FOREIGN INVESTORS: Through years of development and false starts, most of Northern Beef’s funding came from more than 100 foreign investors under the federal EB-5 program, where foreigners could get green cards for investing $500,000 in American businesses. EB-5: The state worked closely with the EB-5 program. It was promoted by Richard Benda, then-secretary of Tourism and State Development, who oversaw overseas investors. State official Joop Bollen also created private companies to manage EB-5 investments. Bollen resigned the day he signed a contract for his own business to handle the state’s EB-5 program. RESULTS: The EB-5 program has worked well for business enterprises such as a Huron turkey plant and a Deadwood casino, but was a bust for a wind farm and Veblen dairies. FEES: Private companies established by Bollen to recruit foreign investors made millions by taking a cut of the investments made by foreign investors. OFFSHORE: Secret investors offered a $30 million loan to the beef plant through companies incorporated in the Caribbean islands. INVESTIGATIONS: Three state investigations found that money intended for the program was misused. A federal investigation is ongoing. BENDA DEATH: Meanwhile, Benda died in late October from a gunshot wound. His death has been ruled a suicide. UNAPPROVED: Bollen began recruiting foreign investors to EB-5 projects not approved by the state. TYPICAL: The loan model used to draw investors for Northern Beef mirrored industry standards in how it was structured and regulated, a national expert says. LEGISLATURE: The executive board decides against an additional audit of the EB-5 visa program used to draw investors for the beef plant. NEW OWNER: White Oak Global Advisors, a San Francisco investment firm, wins the bidding for the bankrupt beef plant but isn’t yet divulging its plans.

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The former head of the Department of Tourism and State Development who oversaw the state’s EB-5 investment program should have been required to disclose that he was preparing to go to work for that program in the private sector, an audit of the Governor’s Office of Economic Development concludes.

But at the same time that Richard Benda was negotiating a contract to oversee EB-5 loans for SDRC Inc., a private entity, he also was steering state economic development money to Northern Beef Packers. That Aberdeen meatpacking plant relied heavily on EB-5 loans administered by SDRC.

“The GOED should have had a policy in place that would have required Secretary Benda to disclose his future employment plans and remove himself from involvement in subsequent matters relating to” Northern Beef Packers, the report said. “The lack of a formal written policy and related procedures ... regarding ethics and conflicts of interest increases the risk that the personal interests of employees may compromise the public interests of the GOED.”

The conflict of interest with Benda, who committed suicide last year amid ongoing federal and state investigations into the EB-5 program, is one of the key findings of the audit, which Gov. Dennis Daugaard’s office released Thursday.

Like two previous audits into the Governor’s Office of Economic Development, Thursday’s audit by the Department of Legislative Audit confirms discrepancies identified by Attorney General Marty Jackley’s office. They included Benda double-dipping for about $5,000 in travel expenses. The audit also confirms that Benda diverted $550,000 from a $1 million state grant to SDRC. The grant was supposed to have helped cover Northern Beef constructions costs, but the $550,000 went to SDRC to monitor EB-5 loans, Benda’s new job after he left state government.

The audit noted that the issuance of the grant to Northern Beef was proper under state law, and that the $550,000 that Northern Beef agreed to send to SDRC was “a matter between private parties.”

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“Any criminal findings that may be associated with this matter are the purview of the state and federal criminal investigations being conducted and are not within the scope of our audit responsibilities,” the report said.

Speaking at a news conference Thursday, Lt. Gov. Matt Michels said he is pleased the audit didn’t identify any other major concerns.

“We are very pleased the audit doesn’t indicate any wrongdoing beyond what the attorney general had reported,” he said.

Michels also predicted that the Legislature’s Government Operations and Audit Committee would also make recommendations about how to strengthen rules regarding employee conflicts of interest. The state, he said, already has laws and rules that cover conflicts, but because of travel and activity among officials in GOED, there should be greater recognition of potential conflicts in that office.

“In my experiences, having seen these type of things in other environments, it’s always incumbent on people to realize that we should consistently be talking to individuals in these offices about these conflicts and how that played out,” he said.

The state began investigating last spring after Daugaard’s office received a subpoena from a federal grand jury to turn over documents related to the EB-5 program and Benda’s travel on behalf of the program, which solicited $500,000 loans from wealthy foreign investors for economic development projects. In exchange for the loans, the foreign investors were then eligible for green cards. More than 120 investors made loans to Northern Beef Packers, which filed for bankruptcy last summer.

“The governor asked the attorney general to investigate, and he ordered three different independent reviews,” said Tony Venhuizen, the governor’s director of policy and communications. “The AG’s report was released last fall, and the (Department of Legislative Audit) report today is the third and final review report to be released.”

In addition to a recommendation that GOED have written procedures regarding conflicts of interest, the audit suggested that stronger controls are needed over payment of state funds for travel vouchers. That recommendation is based on six invoices for $14,700 that were submitted for “translation services.”

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Five of the invoices were handwritten, with the notation “only invoice available.” One was on the letterhead of a Philippines hotel for “translation and interpretation” services. No receipts were included with the travel vouchers to show that payment had been made for those services.

The audit notes that as of Dec. 2, 2010, Benda already was in negotiations to join SDRC to monitor EB-5 loans. On Dec. 8, former Gov. Mike Rounds signed a commitment for $1 million in state money to Northern Beef Packers, provided the company met performance requirements.

Later that month, Benda signed two agreements that expanded state loan commitments from $1.45 million to $2.05 million for Northern Beef. Of that amount, $1.2 million was disbursed to Northern Beef on Feb. 1.

On Jan. 13, Benda, who had left the employ of the state five days earlier, received an email stating that a check for the $1 million grant for Northern Beef’s construction costs was ready to be picked up. The check was deposited by Northern Beef on Jan. 26. Of that, $550,000 went to SDRC to monitor EB-5 loans, Benda’s new job.

For Rounds, who is running for U.S. Senate, the EB-5 scandal has given detractors ammunition to criticize the former governor’s administrative skills. Rob Skjonsberg, the campaign manager for Rounds, noted Thursday that Rounds had already left office by the time Benda picked up the $1 million check, and that Benda no longer was a state employee by then.